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Preferential Regulatory Treatment and Banks' Demand for Government Bonds

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  • CLEMENS BONNER

Abstract

The purpose of this paper is to analyze the impact of preferential regulatory treatment on banks' demand for government bonds. Using unique transaction‐level data, our analysis suggests that preferential treatment in microprudential liquidity and capital regulation significantly increases banks' demand for government bonds. Liquidity and capital regulation also seem to incentivize banks to substitute other bonds with government bonds. We also find evidence that this “regulatory effect” leads banks to reduce lending to the real economy.

Suggested Citation

  • Clemens Bonner, 2016. "Preferential Regulatory Treatment and Banks' Demand for Government Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(6), pages 1195-1221, September.
    • Handle: RePEc:wly:jmoncb:v:48:y:2016:i:6:p:1195-1221
    DOI: 10.1111/jmcb.12331
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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